Talking about the housing crisis means talking about immigration

Over the past few years, the great American economist and author Thomas Sowell has taken a...

Over the past few years, the great American economist and author Thomas Sowell has taken a step back from the prominent position he has held in public life over the past decades; 18 months ago he stopped writing his widely syndicated column altogether. Aged 87, he certainly deserves the rest after an extraordinarily productive career. But he did recently agree to be interviewed by the excellent Dave Rubin (of The Rubin Report) at Stanford University, where Sowell is still a senior fellow.

At one point, the conversation turned to housing – a subject which, on the West Coast of America, and especially in San Francisco and Silicon Valley, is almost as all-consuming as it is in London. The median house price in San Francisco in the first quarter of this year, was $1.61 million. In the first quarter of 2013, it was $850,000. The cost of the average house in San Francisco has almost doubled in the last five years alone. In the Bay area and beyond, similar patterns emerge.

Sowell, reverting to type, imparted a piece of pure wisdom when mentioning, in passing, the issue of “affordable housing” and the authorities in the local area:

“They are appointing blue ribbon committees to look into why there’s no affordable housing. That’s like appointing a blue ribbon committee to explain why the ground is wet after rain. It’s very simple. If you prevent people from building housing and the population is growing you’re going to have a housing shortage and you won’t have affordable housing. It’s really economics one during the first two weeks.”1

One of the most remarkable aspects of the housing debate in the UK is that only the first portion of that first fortnight of an economics degree is ever dwelt upon. The issues of planning consent, or lack of consent, as well as failed government targets and all the issues to do with brownfield and greenfield sites are an important part of the discussion. But they are only half of it – at most. Yet it is these parts of the housing debate which dominate. A much rarer focus – even in the UnHerd’s excellent “Home Truths” – is the issue of demand.

It was once assumed that average house price would be around three to four times an individual’s earnings, and that when average house prices were up to five times average earnings, there would be a slump in house prices. In recent years, all such pieces of received wisdom have gone the way of astrology. In London, in the last quarter of last year, house prices in the capital reached 14.5 times the average earnings. Not 14.5 times average earnings nationwide, but 14.5 times average earnings in the capital.

The societal implications of this are already making themselves felt. Just this week, a report from the Resolution Foundation found that on current trends, up to half of today’s younger generation will be renting into their forties and up to a third for their entire lives. The long-term effects of this are dire. Since rental payments are this generation’s largest outgoing, it is almost impossible to see how a portion of them are going to have enough money in retirement to continue to pay their landlords.

And along the way, politics itself will change, with a generation rent looking to drastic answers to this drastic problem. It is no good for Conservatives to talk about personal responsibility and fiscal prudence to a generation which is having to paddle ever harder just to keep their heads above the waterline. As has been said many times before, the virtues of capitalism are not always clear to a generation without capital. And when the most important asset most of us will ever own – a house – is beyond the reach of so many, even respect for other peoples’ assets may become a diminishing force.

But to return to Sowell’s point on housing stock. The first part of that equation is obvious. In San Francisco and the surrounding area, the cause of the ‘demand’ side is the tech companies who dominate the Valley. They have given the impression that the Valley and surrounding area (including San Francisco) are the places that people absolutely have to be in if they are to be part of the tech world. It is true that proximity to other people in the same fields, and the possibility of raising funds from people within a tight geographical location has its advantages. But there is also a point at which those advantages pall. A point that is currently the subject of much discussion in the Bay area.

The virtues of capitalism are not always clear to a generation without capital

In Britain, by contrast, there is very little consideration of the causes of the demand. Though it is true that divorce and people choosing to live alone in recent years has spurred some demand, there is one overwhelming factor that has caused the majority of it: immigration.

In recent years, net immigration into the UK – that is the number of extra people who settle in Britain, taking into account those who have left – has consistently been over the 300,000 mark. Let’s diminish the number and say that it is a straight 300,000. Newcastle is a city with a population of around 280,000. So going on the number of people arriving in the UK each year over recent years, the country needs to build a city larger than Newcastle every year just in order to keep up with demand. The fact that house builders have not kept up with this demand is a contributing factor to the crisis, certainly. But the other is that the demand is there in the first place.

All of which poses a question at least as important as those regarding planning permission, which is this: does the UK really want to try to keep building a city larger than Newcastle every year? And bear in mind that most migration does not spread evenly around the country. It overwhelmingly focuses on major cities, and London in particular.

Most people starting off in their career will find it exceptionally difficult – to put it mildly – to get on a housing ladder that requires them to raise a deposit and a mortgage worth almost 15 times their salary. All to live in a place where over-crowding and a struggling infrastructure will become more and more acute as that Newcastle-sized city continues to try to squeeze into it.

Britain needs to build a city the size of Newcastle every year to meet housing demand. Credit: Getty

It is, though, far easier to talk about planning consent than it is to speak about immigration. Far easier to set up a blue ribbon committee than to address a question filled with pitfalls and inviting of dishonest allegations. Net immigration of almost a third of a million people a year means a UK population soaring to 70 million in the near future and a whole world of societal and fiscal issues that flow from that. Plus a long-term agreement that Britain’s future is destined to be one of ever-more urban sprawl and ever less green or pleasant land.

Polling suggests that the current population is not by any means happy about the recent level of migration. And it is easy to see why. Competition from that 300,000 a year is a very large part of the reason why demand has so vastly outstripped supply and generation rent is being kept from the housing ladder.

‘Banging on about immigration’ is the usual charge when this uncomfortable fact is brought up. But when it comes to housing, ‘banging on about immigration’ also turns out to be ‘banging on’ about perhaps the one thing that matters most.